Coffee Prices Retreat as Weather Risks in Brazil and Vietnam Subside

Coffee prices, including arabica and robusta, experienced a sharp sell-off today, with arabica down 2.04% and robusta down 3.17%, reversing an earlier rally. This decline was primarily attributed to improved weather forecasts predicting rain in Brazil's coffee-growing regions and a reduced likelihood of heavy rains in Vietnam, easing immediate supply concerns. Further downward pressure came from expectations of a potential removal of 50% tariffs on Brazilian imports and increased robusta exports from Vietnam, which is projecting a 4-year high in 2025/26 production. These bearish factors overshadowed ongoing support from historically low ICE coffee inventories, persistent drought conditions in Brazil threatening the 2026/27 crop, and projections of a fifth consecutive global arabica deficit.

Analysis

Coffee futures experienced a sharp sell-off today, with December arabica (KCZ25) falling 2.04% and November robusta (RMX25) declining 3.17%, reversing earlier gains. This downturn was primarily driven by improved short-term weather forecasts, including weekend showers for Brazil's coffee-growing regions and a reduced likelihood of heavy rains in Vietnam's Central Highlands, easing immediate supply concerns.

Further bearish pressure stemmed from hopes of a potential removal of 50% tariffs on US imports from Brazil, following "very positive talks" between US and Brazilian trade officials. Additionally, robusta supplies are increasing, with Vietnam's Jan-Sep 2025 exports up 10.9% year-over-year and its 2025/26 production projected to climb 6% to a four-year high of 1.76 MMT.

Despite today's decline, underlying bullish factors persist, including ICE-monitored arabica inventories hitting a 19-month low of 465,910 bags and robusta inventories at a three-month low. Concerns about the 2026/27 crop remain due to intense drought in Brazil, with Minas Gerais receiving only 70% of average rainfall, and NOAA increasing the likelihood of a La Niña weather system to 71% for Oct-Dec. Conab also cut its Brazil 2025 arabica crop estimate by 4.9% to 35.2 million bags.

Conflicting long-term outlooks exist, with Volcafe projecting a fifth consecutive global arabica deficit of 8.5 million bags for 2025/26, while the USDA's FAS forecasts a 2.5% increase in overall world coffee production for 2025/26, driven by a 7.9% rise in robusta output and a 4.9% increase in ending stocks.

Key Decisions for Investors

• Monitor short-term weather developments in Brazil and Vietnam closely, as these will continue to drive immediate price volatility in coffee futures.
• Track progress on US-Brazil trade tariff negotiations, as a potential removal of the 50% tariffs could significantly impact supply dynamics and pricing for Brazilian coffee.
• Evaluate the divergence between bullish arabica deficit projections (Volcafe) and bearish overall supply forecasts (FAS), considering the potential for robusta oversupply to cap broader market gains.
• Assess the implications of persistently low ICE coffee inventories against increasing robusta production, which may create a bifurcated market for arabica and robusta varieties.